WEAKNESSES

Dependence of the Finnish banking sector on the Swedish and Danish financial sectors, despite the return of a major institution in 2017

Ageing population

Risk assessment

Dynamic activity sustained by domestic demand and exports

In 2018, activity will slow down slightly, although growth will remain above potential. Private investment, although more moderate in 2018, will remain one of the main contributors to growth, due to low interest rates, coupled with dynamic domestic and external demand. Higher capacity utilization rate in the forestry and metallurgical industry would foster investment in these sectors. Investment in research and development will also be more dynamic following several years of decline due to the deterioration of mobile telephone services. Residential construction will support activity, due to strong housing demand, particularly in the Helsinki area. In addition, the expansion of tourism will continue, driven by a growing influx from Russia and Asia, attracted by preserved natural sites and the northern lights.

Exports will continue to benefit from the Competitiveness Pact, which reduced unit labour costs by 3.7% in 2017, although wages are expected to rise again in 2018. In addition, strong demand in the main partner countries (Sweden, the United States and Germany), as well as the economic recovery in Russia, would favour Finnish exports. The dynamism of orders in the shipbuilding industry and the completion in 2017 of the country’s largest wood processing plant (paper, resin, bioenergy, etc.), will also support exports. Thus, the contribution of trade to growth will be positive in 2018.

Household consumption will be more dynamic, driven by a slight rise in wages, in a context of moderate inflation, and by decreased unemployment (7.3% in October 2017). Low interest rates will also favour consumption, even if the weight of the debt (129% of disposable income) will still weigh on the financial situation of households.

Conservative fiscal policy and small current account surplus

The government’s priority in 2018 will remain the reduction of unemployment and the control of public spending, although many efforts have already been made in these areas. In addition, the government should continue lowering income tax (mainly for low income), which was the counterpart of the austerity measures of the Competitiveness Pact. The latter includes the extension of the annual working time, a transfer of part of the employer’s contributions to the employee contributions and a wage freeze. The 2018 budget also provides for an increase in retirement pensions, as well as an increase in social transfers for the elderly and single-parent families. In addition, public investment will remain small, except for public transport. In addition, the country would progress in its decentralization process, giving more powers to the regions. The increase in expenses would nevertheless be offset by the increase in revenues, due to the favourable economic situation and the increase in property tax. Thus, the budget deficit would always remain below 3% and public debt will approach the threshold provided for by the European Stability and Growth Pact (60% of GDP). Nevertheless, in the absence of structural reforms, the rapid ageing of the population would threaten the social security system and the control of public accounts.

The current account balance will remain positive in 2018 owing to the maintenance of a small trade surplus linked to export growth. Nevertheless, the increase in imports would halt the improvement observed in the current account, due to a more dynamic domestic demand and a moderate increase in oil prices (2nd import station).

A government majority that is small but benefiting from the dynamism of the economy

In June 2017, the election of Jussi Halla-aho as the leader of the Finns Party (extreme right), resulted in the exclusion of this party from the government coalition, because it was considered too strict on immigration issues. The defection of more than half of the members of his party (19 out of 36) has formed a new coalition government, led by the Centre Party, also consisting of the National Coalition Party (centre-right) and the blue Reform Party, which was born from the split of the Finns Party. The ministerial posts remained unchanged as all the members of the Finns Party government had already joined the Blue Reform. In addition, the new coalition government seems more fragile since it has a smaller majority than the previous government (106 seats out of 200, instead of 124). However, the good economic performance should allow the government to remain in place until the next parliamentary elections in April 2019.

The business environment remains very favourable as the country ranks 13th out of 190 in the 2018 Doing Business report published by the World Bank, with particularly remarkable performance in insolvency settlement. In addition, the dynamism of activity has contributed to the reduction in the number of business bankruptcies since 2016.

Last update : January 2018

Payment

Bills of exchange are not commonly used in Finland because they signal the supplier's distrust of the buyer. A bill of exchange primarily substantiates a claim and constitutes a valid acknowledgment of debt.

Cheques, also little used in domestic and international transactions, but only constitute acknowledgement of debt. However, cheques that are uncovered at the time of issue can result in the issuers being liable to criminal penalties. Moreover, as cheque collection takes a particularly long time in Finland (twenty days for domestic cheques or cheques drawn in European and Mediterranean coastal countries, 70 days for cheques drawn outside Europe), this payment method is not recommended.

Conversely, SWIFT bank transfers are increasingly used to settle domestic and international commercial transactions. Finns are familiar with this efficient method of payment. When using this instrument, sellers are advised to provide full and accurate bank details to facilitate timely payment, while it should not be forgotten that the transfer payment order will ultimately depend on the buyer's good faith. Banks in Finland have adopted the SEPA (Single Euro Payments Area) standards for EUR-denominated payments.

Debt collection

Amicable phase

The goal of the amicable phase is to reach a voluntary settlement between the creditor and debtor without begin legal proceedings. Finnish legislation obliges creditors to begin the amicable phase amicable phase via letters, followed up as necessary with a final demand for payment by recorded delivery or ordinary mail. This demand for payment asks the debtor to pay the outstanding principal increased by past-due interest as stipulated in the contract.

In the absence of an interest rate clause in the agreement, interest automatically accrues from the due date of the unpaid invoice at a rate equal to the Central Bank of Finland's (Suomen Pankki) six-monthly rate, calculated by reference to the European Central Bank’s refinancing rate, plus seven percentage points.

The Interest Act (Korkolaki) already required debtors to pay up within contractually agreed timeframes or become liable to interest penalties.

Since 2004, the ordinary statute of limitations for Finnish contract law is three years.

Legal proceedings

Fast-track proceedings

For clear and uncontested claims, creditors may use the fast-track procedure, resulting in an injunction to pay (suppea haastehakemus). This is a simple written procedure based on submission of whatever documents substantiate the claim (invoices, bills of exchange, acknowledgement of debt, etc.). The court sets a time limit of approximately two weeks to permit the defendant to either respond to or oppose the petition. In addition, this fast track procedure can also be initiated electronically for cases of undisputed claims. The presence of a lawyer, although commonplace, is not required for this type of action.

Ordinary proceedings

Ordinary legal action usually commences when amicable collection has failed. A written application for summons must be addressed to the registry of the District Court, which then serves the debtor with a Writ of Summons. The debtor is given approximately two weeks to file a defence.

During the preliminary hearing, the court bases its deliberations on the parties’ written submissions and supporting documentation. The court then convokes the litigants to hear their arguments and decide on the relevance of the evidence. During this preliminary phase, and with the judge’s assistance, it is possible for the litigants to resolve their dispute via mediation and subsequently protect their business relationship.

Where the dispute remains unresolved after this preliminary hearing, plenary proceedings are held before the court of first instance (Käräjäoikeus) comprising between one and three presiding judges, depending on the case’s complexity. During this hearing, the judge examines the submitted evidence and hears the parties’ witnesses. The litigants then state their final claims, before the judge delivers the ruling – generally within fourteen days.

The losing party is liable for all or part of the legal costs (depending on the judgement) incurred by the winning party. The average time required for obtaining a writ of execution is about twelve months. Undisputed claims in Finland can normally last from three to six months. Disputed claims and the subsequent legal proceedings can take up to a year.

Commercial cases are generally heard by civil courts, although a Market Court (Markkinaoikeus) located in Helsinki has been in operation as a single entity since 2002, following a merger of the Competition Council and the former Market Court.

Enforcement of a Court decision

A judgment is enforceable for fifteen years as soon as it becomes final. If the debtor fails to comply with the judgment, the creditor may have it enforced by a bailiff, who will try to obtain an instalment agreement with the debtor, or enforce it through a seizure of assets.

For foreign awards, since Finland is part of the European Union (EU), it has adopted enforcement mechanisms applicable to court decisions issued by other EU members, such as the EU Payment Order and the European Enforcement Order. For judgments issued by non-EU members, the issuing country must be part of a bilateral or multilateral agreement with Finland.

Insolvency proceedings

Out-of-Court proceedings

Finnish law provides no specific rules for out-of-court settlements. Negotiations between creditors and debtors are made informally. If an agreement is reached, it must still be validated by the court.

Restructuring proceedings

The goal of restructuring is to allow an insolvent company to remain operational through administration, with the view that if the company is able to continue its business, it will be able to repay a larger part of its debts than would have been possible in the case of bankruptcy of the company. The commencement of these proceedings triggers an automatic moratorium, providing the company with protection from its creditors.

The board of directors maintains its power of decision but the receiver is entitled to control certain aspects of the company’s operations, including the creation of new debts and overseeing transfers of ownership.

Liquidation

When debtors are unable to pay their debts when due and this inability is not temporary, they are placed into liquidation. Upon acceptance of a liquidation petition by the court, the debtor is declared bankrupt. A receiver is appointed, and a time limit is established for any creditors to present their claims. The receiver then establishes a proposed distribution scheme, whilst creditors supervise the selling of the estate and the distribution of the sales’ proceeds.